Page 1
s Tyron Breytenbach , P.Geo, (416) 943-6747 [email protected]
Cameron Magee , Associate, (416) 943-6749 [email protected] M E T A L S & M IN IN G
March 26, 2019 Minera Alamos Inc.
Rebuilding The Castle
Unless otherwise denoted, all figures shown in US$ We are using a 0.752 US$/C$ conversion rate
Recommendation: Buy (S)
Target Price: C$0.25
Company Statistics:
Stock Symbol: MAI – TSXV
Price: C$0.11
Share Outstanding:
Basic: 350.9 MM
Fully Diluted: 451.7 MM
Management: 25.0 MM (8.0%)
Market Cap: C$38.6 MM
Enterprise Value: C$33.4
Cash: C$5.2 MM
High – Low: C$0.16 – C$0.09
Current Resource: 1.0 MMoz AuEq
Forecast Resource: 1.35 MMoz AuEq
Company Description:
Minera Alamos is an advanced-stage
exploration and development company with
a portfolio of small, high-quality, low capex
Mexican assets. With a cornerstone strategic
partner in Osisko Gold Royalties, (Buy,
C$17.00 Target) Minera Alamos will face
minimal funding hurdles as it looks to
complete a phased build out of small mines.
During the past twenty-four months,
Cormark Securities Inc., either on its own or as a syndicate member, participated in the underwriting of securities for these companies
Unusual Growth Model: Minera is following the Castle Gold model (sold to
Argonaut) of bootstrapping small but low-capex mines into production then
using the cash flow to scale. Minera has three advanced assets in Mexico,
two (Santana, La Fortuna) will be permitted by H1/19 and a third
(Guadalupe De Los Reyes – “GDR”) is in the engineering/design phase.
Proven Team: Minera’s CEO is a metallurgist with a specialization in small
Mexican heap leach mines, Management and the Board have built multiple
analogous mines that serve as key producers for Argonaut (AR:T, Buy,
C$3.80 Target) and Alamos (AGI:T, Not Rated).
Organic Upside: We estimate Minera has defined ~500 koz of new
resources since taking control of the three projects. We review why there is
ample potential to continue this growth to extend and expand the planned
profile to >150 koz/yr by 2022 by targeting near-mine extensions.
Osisko Royalties Backing: Minera has a royalty funding agreement with
Osisko Gold Royalties and the senior is also a 13.3% equity holder. The
ultra-low start-up capex (estimated at US$12.5 MM), along with the royalty
funding commitment ensures Minera can move to production insulated from
the challenging gold equity market.
Buy (S) Rating, C$0.25 Target: Based on our model, a fully diluted and
funded Minera carries a NAV of C$0.40. We initiate with a Buy (S) rating.
Few peers can deliver comparable production for as little capex. We believe
the company can differentiate itself from peers via its focus on fast-tracking
to cash flow status.
2019E 2020E 2021E 2022E 2023E
Au Price ($/oz) $1,250 $1,250 $1,250 $1,250 $1,250
P/NAV 0.27x
NAV C$0.40
Disclosure statements located on pages 25 – 29 of this report
Cormark Securities Inc.
Page 2
MARCH 26, 2019 TYRON BREYTENBACH 416·943·6747; CAMERON MAGEE - ASSOCIATE 416·943·6749
2
Focusing On Cash Flow Then Scale
Three Advanced Assets
Asset 1 - Santana (Permit Pending): Santana was acquired via the merger with
Corex Gold (link) and will be the first mine built under Minera’s compressed growth
timeline. Santana is the smallest of three projects (we estimate 300 koz at 0.75 g/t
Au) but also the most advanced. Santana is on the cusp of being permitted and is
located in Sonora along a paved highway, 50 km SW of Mulatos (Alamos). Minera
has already completed a 50,000 tonne bulk sample to de-risk mining and recovery
assumptions. We model a Q1/20 start date and production of 42 koz/yr at AISC of
US$821/oz. The real highlight is projected capex of just US$12.5 MM.
Asset 2 – La Fortuna (Permitted in H1/19): Once Santana is in production, Minera
expects to divert that cash flow to assist with funding of La Fortuna (Durango State).
La Fortuna is considered the flagship project and will use a conventional milling
circuit (2,000 tpd mill already acquired). A 2018 PEA completed by CSA (link)
outlined an O/P mine producing 50 koz AuEq/yr at U$440/oz AISC with pre-
production capital of just US$26.9 MM. We largely twin the PEA model.
Asset 3 – GDR (Engineering): The third asset is a 655 koz AuEq open-pit resource
(or 723 koz using Minera’s metal price ratio) in Sinaloa state and is currently being
engineered in-house as a heap leach operation. While it is the earliest stage asset in
the stable, we expect it could add 50 koz/yr to the profile. We use an in-situ valuation
for GDR for the time being.
Target Of 150 Koz production by 2022: Minera is shooting for junior producer
status and starting small to limit equity dilution. In addition to the three starting
assets, we expect that the vehicle will position itself as a Latin American roll-up
strategy targeting relevant but unfunded resources.
Figure 1 Price Chart
Source: BigCharts.com (Since October 25, 2018)
Page 3
MARCH 26, 2019 TYRON BREYTENBACH 416·943·6747; CAMERON MAGEE - ASSOCIATE 416·943·6749
3
Figure 2 Advanced Mexican Asset Portfolio
Source: Company Reports
Proven Bootstrap Model
The Minera team has combined experience bringing on three mines in the last 12
years with a specific focus on small, efficient heap leach projects in Mexico
(including El Sastre, El Castillo and a satellite operation at Mulatos). The goal is to
minimize pre-production capex by focusing on getting into production and delaying
resource growth until cash flow begins. This concept fits well in the current anemic
market for explorer capital.
The low-capex, starter mine model is also being paired-up with a cornerstone funding
partner in Osisko Royalties. This further reduces an already low funding hurdle (see
Figure 4).
The LT goal is reaching production of >150 koz/yr in 2-3 years and we note that
Minera starts its life with a stronger initial asset base than the team had at Castle
Gold, which was eventually sold to Argonaut for C$130 MM in 2009.
Osisko Partnership Equity Holder And Future Financier: Osisko Royalties (“OR”) owns 13.3% of
Minera, having participated in a number of equity financings starting in May 2017.
The equity placement included a long-term investment agreement that gives Osisko a
path to acquiring a 4.0% NSR on the flagship La Fortuna project for C$9 MM. This
agreement was modified in Dec 2018 when Osisko Royalties advanced a C$2 MM
senior secured loan which is convertible to a 1% NSR in lieu of repayment (we
assume conversion).
Page 4
MARCH 26, 2019 TYRON BREYTENBACH 416·943·6747; CAMERON MAGEE - ASSOCIATE 416·943·6749
4
Other Rights: In addition to the path to a 4% NSR on La Fortuna, Osisko Royalties
will have the right to buy back half of the existing third-party royalty held by
Argonaut (i.e. half of 2.5%). Osisko Royalties will also be entitled to acquire (at fair
market value) a 2% NSR on any satellite prospects discovered within 250 km of La
Fortuna. Finally, Osisko Royalties will have a participation right on any royalty or
stream granted on any of Minera’s assets (for example we model a 3% NSR sale on
Santana).
Future Funding Optionality: Given the low valuation of Minera (0.27x our funded
NAV) and the limited appetite for junior gold equities, we believe the partnership
with a royalty company is suited to the current market environment and will further
ensure Minera can tap into Osisko Royalties “braintrust” of geologists and engineers.
As an example, renowned porphyry/epithermal expert, Ruben Padilla has joined the
Board of Minera. Recall that Mr. Padilla is chief geologist at the Osisko-linked
Talisker Exploration services. This will be key in evaluating the brownfields
exploration upside as Minera’s assets are all porphyry/epithermal related systems.
Figure 3 Osisko Royalties Accelerator Model
Source: Company Reports
Page 5
MARCH 26, 2019 TYRON BREYTENBACH 416·943·6747; CAMERON MAGEE - ASSOCIATE 416·943·6749
5
Figure 4 Conceptual Growth Path
Source: Company Reports
Asset 1 (Santana) Cormark Model
Favourable Location: Santana is a very straightforward asset and is located among a
cluster of operating heap leach mines (La Colorada, Mulatos, etc.) in Sonora state
(Figure 5). In addition to readily available mining labour and services, the project is
road accessible and grid power is available ~100 km away. Given the limited scale of
the operation (~8,000 tpd) and lack of fine crushing requirement, we expect that
power will be diesel generated to start.
Low-Strip Starter Pit Resource: With no compliant study on hand we have relied
on our internal resource estimates of this shallow epithermal deposit. We have
selected just one zone (“Nicho”) as our model focus. We believe Nicho represents a
low strip (Figure 7) open-pit target. Definition drilling includes intercepts of 1.04 g/t
Au over 87.0 m and mineralization represents a low-lying hill and this geometry is
the major driver of the favourable strip ratio assumption (2.23:1). Based on a rough
sectional/polygonal resource, we model a mine plan inventory of 300 koz at 0.75 g/t.
Test Mining/Leaching Complete: Minera has mined and processed 50,000 tonnes at
various crush sizes (using a mobile crusher) from <0.5” up to 3”. Based on
discussions with Management and filings, recoveries average 70-75% and appear
relatively insensitive to crush size (some improvement in recovery with fine crush but
not enough to justify the capex). We currently assume that no agglomeration will be
required for this small (100,000 m2) leach pad. Reagent use is low (<0.20 kg/t for
cyanide and lime).
Page 6
MARCH 26, 2019 TYRON BREYTENBACH 416·943·6747; CAMERON MAGEE - ASSOCIATE 416·943·6749
6
US$12.5 MM Capex: Multiple factors contribute to the low estimated start-up
budget. The infrastructure advantage and contract mining approach contribute to
lower surface development costs and the pilot pad indicates little to no crushing
facilities will be required. Based on the small resource assumption, Minera plans to
simply ship carbon rather than build an ADR plant. In Management’s experience this
approach also reduces the risk of theft. Our capex assumption is further supported by
Management track record bootstrapping similar heap leach assets into production.
We have also cross checked this estimate with Equinox’s (EQX:T, Buy, C$1.75
Target) Phase-1 test leach operation at Castle Mountain in California (2018 PFS).
For example, the pre-tax, pre-contingency cost to establish the Castle Mountain
Phase-1 ROM operation was set at US$22.87 MM but that included US$5.5 MM for
a carbon reabsorption plant.
Costs Benchmarked To HL Peers: We have benchmarked our operating unit costs
to a number of recent open-pit heap leach operations (Figure 8) including Florida
Canyon (in operation), Castle Mountain (2018 PFS), Camino Roja (2018 PEA) and
have paid particular attention to the Phase-1 “starter mine” at Castle Mountain which
is the most directly comparable ROM pit, modelled at 12,700 tpd. We have also
dialed in higher than average unit costs to account for the limited economies of scale.
We model US$2.25/t for mining costs (per tonne of rock), US$3.50/t for processing
and US$2.50/t for G&A.
Royalties: While the current Osisko Royalties agreement is focused on La Fortuna,
we believe the royalty company has a mandate to accumulate 4% NSR positions
across its entire portfolio (e.g. Barkerville) and we assume that outstanding capex at
Santana is funded by a combination of NSR and debt. We discuss the potential
timing of corporate level funding activities later in this report we include a 3% NSR
in our Santana model.
Targeting 42 koz/yr at US$821/oz AISC: Based on a 8,000 tpd processing rate we
expect Santana will produce 47 koz/yr at its peak, starting in 2020 and run for 4.5
years. We expect Minera will then evaluate the other epithermal targets at site as our
model includes only the Nicho zones.
NPV5% of US$38 MM and 94% IRR: The short mine life and limited scale is
offset by a rapid return of capital (1-year payback). We expect that Santana can
deliver >US$10 MM/yr in FCF to assist in funding La Fortuna and regional
exploration as well as external M&A.
Permit In Q2/19: Commercial scale operating permits were submitted in July 2018
and approval is expected in Q2/19.
During the past twenty-four months, Cormark Securities Inc., either on its own or as a syndicate member, participated in the underwriting of securities and/or provided financial advice regarding the
stock market insight and financial analysis regarding potential transactions for these companies
Page 7
MARCH 26, 2019 TYRON BREYTENBACH 416·943·6747; CAMERON MAGEE - ASSOCIATE 416·943·6749
7
Figure 5 Santana Location Map
Source: Company Reports
Figure 6 Test Mining/Leaching Complete
Source: Company Reports
Page 8
MARCH 26, 2019 TYRON BREYTENBACH 416·943·6747; CAMERON MAGEE - ASSOCIATE 416·943·6749
8
Figure 7 Low Projected Strip Ratio (2.23:1)
Strip Ratio Calculation
Total Area of O/P (m²) 58,500
Area of Mineralized Zone 1 (m²) 25,500
Area of Mineralized Zone 2 (m²) 6,750
Total Area of Waste Material (m²) 26,250
Implied Strip Ratio 2.23
Source: Cormark Securities Inc., Company Reports
Figure 8 Cost Comparables
wOrla Mining wVictoria wEquinox wAlio Average Minera Alamos
Project Camino Roja Eagle Gold
Castle
Mountain
(Phase 1)
Florida
CanyonSantana
Source PEA (2018) DFS (2016) PFS (2018) PEA (2019) CSI Estimates
Throughput (tpd) 18,000 33,700 12,500 23,929 25,826 8,000
Pre-Prod. Capex (US$000's) 120 370 52 NA 222 13
Sustaining Capex (US$000's) 15 183 NA 68 102 6
Capex/Tonne (US$) 6,678 10,979 4,128 7,562 1,563
Mining Cost (US$/t mined) 3.05 2.30 1.84 1.93 2.24 2.25
Processing Cost (US$/t milled) 3.20 6.00 1.72 3.23 3.14 3.50
G&A Cost (US$/t milled) 1.77 1.70 0.94 0.61 1.20 2.50
Total (US$/t milled) 8.02 10.00 4.50 5.77 6.58 8.25
w During the past twenty-four months, Cormark Securities Inc., either on its own or as a syndicate member, participated in the underwriting of securities and/or provided financial advice regarding the stock market insight and financial analysis regarding potential transactions for these companies
Source: Cormark Securities Inc., Company Reports
Page 9
MARCH 26, 2019 TYRON BREYTENBACH 416·943·6747; CAMERON MAGEE - ASSOCIATE 416·943·6749
9
Figure 9 Nicho Norte & Divisadero Satellite Targets Excluded From Model
Source: Company Reports
Asset 2 (La Fortuna) Robust PEA
Recent PEA: La Fortuna is the most advanced asset in the stable and we rely on the
2018 PEA completed by CSA Global. Minera Management has a lengthy history
with the asset having reacquired it back from Argonaut in 2016 (recall that Argonaut
in turn acquired the asset from Castle Gold which was founded by the Minera team).
The PEA outlined a 1,100 tpd starter operation to produce 50 Koz AuEq/yr (43 koz
Au, 0.22 MMoz Ag and 1 Kt Cu) at US$440/oz from a high-grade starter pit (3.68
g/t).
Geology: The mineralization occurs as wide zones of breccia (quartz-tourmaline)
within a late phase porphyry intrusion. Gold and silver occur as grains on boundaries
of chalcopyrite and pyrite (i.e. free milling). The deposit is classified as intrusion-
related but transitional between porphyry and epithermal styles of mineralization
which explains the Cu content (6.5% of revenue is Cu).
IRR of 93%: At the study base case metal pricing ($1,250/oz Au and $16/oz Ag),
the project has highly impressive post-tax economics including a 93% IRR, US$77.5
MM NPV5% and 0.9-year payback.
Existing Mill: In addition to the strong grade (3.68 g/t Au) and low effective strip
ratio (5.5:1 when accounting for ore sorting) the economics are further supported by
the fact that Minera already owns a 2,000 tpd milling and flotation circuit. This is
slightly oversized for the PEA mine plan (1,100 tpd) but adds an element of
conservatism and allows for future expansion. As a result of the existing mill
ownership (the prior owner was a distressed seller after illegally using flow-through
funds to buy the mill), use of a contract miner, as well as the small initial scale of the
operation, pre-production capex is estimated at just US$26.9M.
Page 10
MARCH 26, 2019 TYRON BREYTENBACH 416·943·6747; CAMERON MAGEE - ASSOCIATE 416·943·6749
10
Processing: The PEA flow sheet is based on metallurgical test work completed by
Castle Gold and updated by Minera ahead of the CSA study. The proposed flow
sheet includes a milling circuit (P80 250-300 µm) followed by 45% recovery of the
coarse gold fraction (gravity testing showed up to 80% of gold could be recovered
depending on where cyclones are integrated into the system). The mineralization is
very amenable to flotation (8-10% mass pull) and the bulk concentrate is reground to
80 microns prior to final flotation to produce a saleable Cu concentrate. Total
recoveries are estimated at 90% Au, 85% Ag and 90% Cu. The concentrate will be
shipped to the Port of Guaymas (500 km away) for sale.
Resource Expansion Potential: The 100% owned La Fortuna project totals 62 km2
and covers a number of related breccia systems proximal to La Fortuna including
Ramada, PN, and a southern extension of La Fortuna. Most of these targets show
surface mineralization but have not been subject to systematic drill definition.
Low Grade Processing: The PEA separates the resource into 2 buckets for
processing; High Grade (>1.6 g/t Au) is sent directly to the mill and Low to Medium
Grade (0.8-1.6 g/t Au) is stockpiled for upgrading via ore sorting. The PEA mine
plan envisions the upgraded ore reaching the plant in Year 3 of the 5-year mine life.
We expect that should the mine plan be upsized to match the mill’s capacity, Minera
could lower the cut-off grade and smooth out the production profile somewhat.
Royalties: We model the proposed 4% NSR (to Osisko Royalties) and the existing
2.5% NSR held by Argonaut.
Permit In H1/19: Technical approval of Minera’s federal permit submission
occurred in November 2018 and puts the project on track for a construction decision
in the second half of this year.
Page 11
MARCH 26, 2019 TYRON BREYTENBACH 416·943·6747; CAMERON MAGEE - ASSOCIATE 416·943·6749
11
Figure 10 La Fortuna Location Map
Source: Company Reports
Figure 11 La Fortuna PEA Mine Plan
Total Gold Total
Mill Feed Au Grade Ag Grade Cu Grade Contained Mined Material
Year (kt) (g/t) (g/t) (%) (koz) (kt)
1 380.0 3.86 21.24 0.29 47.2 2,814.4
2 380.0 3.91 20.27 0.27 47.8 2,848.2
3 410.0 3.39 21.85 0.28 44.7 2,335.7
4 410.0 3.47 19.98 0.29 45.8 4,637.2
5 418.4 3.78 16.79 0.22 50.9 3,095.7
1,998.4 3.68 19.96 0.27 236.6 15,731.2 Source: Company Reports
Page 12
MARCH 26, 2019 TYRON BREYTENBACH 416·943·6747; CAMERON MAGEE - ASSOCIATE 416·943·6749
12
Figure 12 La Fortuna Model Assumptions – Twinning The PEA
CSI La Fortuna (PEA)
Mine Plan Inventory
Mine Plan Ore Kt 2,867 2,867
Mine Plan Gold Grade g/t Au 3.68 3.68
Mine Plan Silver Grade g/t Ag 15.80 19.99
Mine Plan Copper Grade % Cu 0.22 0.27
Production Scale
Ore Throughput tpd 1,100 1,100
Mine Life years 5 5
Au Recovery Rate % 90% 90%
Ag Recovery Rate % 85% 85%
Cu Recovery Rate % 90% 90%
Avg. Annual Au Produced Koz 43 43
Avg. Annual Ag Produced Koz 218 220
Avg. Annual Cu Produced Klbs 2,137 2,205
Avg. Annual AuEq Produced Koz 45 46
Capex
Pre-Production Capex US$000's $26,900 $26,900
LOM Sustaining Capex US$000's $11,100 $7,100
Opex
Mining Cost US$/t mined 2.15 2.15
Milling Cost US$/t processed 22.89 22.89
Ore Sorting Cost US$/t processed 4.00 4.00
G&A Cost US$/t processed 5.54 5.54
Cash Costs (AuEq) US$/oz $377 N/A
AISC Cost (AuEq) US$/oz $410 $440
After Tax & Royalties
NPV (5% Discount) US$MM $77 $77
IRR % 92% 93%
Silver Price US$/oz $15 $16
Gold Price US$/oz $1,250 $1,250
Copper Price US$/lbs $3.00 $2.60
C$/US$ FX Rate 1.33 1.32 Source: Cormark Securities Inc., Company Reports
Page 13
MARCH 26, 2019 TYRON BREYTENBACH 416·943·6747; CAMERON MAGEE - ASSOCIATE 416·943·6749
13
Figure 13 La Fortuna 3D View of Block Model & Pit Shell
Source: Company Reports
Figure 14 La Fortuna Regional Breccia Vein Targets
Source: Company Reports
Page 14
MARCH 26, 2019 TYRON BREYTENBACH 416·943·6747; CAMERON MAGEE - ASSOCIATE 416·943·6749
14
Asset 3 (GDR) In-Situ Model
The final asset to cover is the Guadalupe de los Reyes Project in Sinaloa, which is
being optioned (up to 100%) from Vista Gold/
On the ground activity at GDR has been stalled since 2013 but the deposit hosts an
existing, compliant resource of 535 koz at 1.6 g/t Au (in all categories). Minera is
preparing updated engineering work to evaluate the potential for a heap leach
approach as prior work was focused on a conventional milling circuit design. The
company filed an updated technical report in 2018.
A pit shell optimization was run in the 2018 technical report and at a cut-off grade of
0.5 g/t AuEq ($1,200/oz Au and $15/oz Ag), a conceptual indicated inventory of 308
koz AuEq was defined at a grade if 2.1 g/t AgEq (1.7 g/t Au and 28 g/t Ag) and a
strip ratio of 8.2:1. That combination would be appealing if heap leaching is a
realistic scenario (no column tests are currently available).
As with the prior two assets, GDR is not resource constrained and will gain added
exploration attention once Minera has reached cash flow status. GDR is a near
surface, low-sulphidation epithermal system and 4 veins/zones have been included in
the resource while at least 8 targets areas have been mapped (Figure 16). Over 600
koz have been produced from small-scale historical operations.
Given the lack of clarity on the heap leach mine plan for now (Au recovery of 93%
was estimated using conventional CIL flow sheet) we have started by valuing GDR
on an in-situ basis (US$20/oz) which is below the US$22/oz average paid for
comparable assets (small mill or heap leach in Latin America) since 2016 (Figure
17).
Figure 15 GDR Resource at 0.50 g/t Cut-Off (2018 Technical Report, 2013 Effective Date)
Tonnes Au Grade Ag Grade AuEq Grade Contained Contained Contained
Project (kt) (g/t) (g/t) (g/t) Au Koz Ag Koz AuEq Koz
Indicated Resources
El Zapote 3,980 1.61 16.52 1.61 206 35 206
Noche Buena 937 1.32 16.52 1.52 40 497 46
San Miguel - Chiripa 459 3.19 77.37 4.12 47 1,142 61
Guadalupe 1,520 1.76 52.51 2.40 86 2,602 118
Total Indicated 6,843 1.73 28.71 2.07 380 6,315 456
Inferred Resources
El Zapote 1,127 1.25 11.82 1.38 45 429 50
Noche Buena 480 1.13 17.8 1.34 17 275 21
San Miguel - Chiripa 583 2.21 64.75 2.99 42 1,215 56
Guadalupe 1,054 1.52 50.75 2.13 52 1,721 72
Total Inferred 3,200 1.49 34.87 1.93 155 3,639 199
Total 10,043 1.66 30.83 2.03 535 9,954 655 Source: Company Reports
Page 15
MARCH 26, 2019 TYRON BREYTENBACH 416·943·6747; CAMERON MAGEE - ASSOCIATE 416·943·6749
15
Figure 16 10-km Vein System Mapped On Surface
Source: Company Reports
Figure 17 Comparable Asset Sales
Trans.
Date Value 10-Day 20-Day Target
Announ. Target Location Stage Acquiror
Value
(US$MM) T-1 VWAP VWAP P+P M+I Total P+P M+I Total P/NAV
14-Nov-17 Primero (Cerro del Gallo) Mexico Feas. wArgonaut $15 - - - 934 1,221 2,155 $16 $12 $7 0.84x
5-Sep-17 GoGold (Santa Gertrudis) Mexico PEA Agnico Eagle Mines $80 - - - - 810 1,064 - $99 $75 n/a
21-Jun-17 Goldcorp (Camino Rojo) Mexico PEA wOrla Mining $27 - - - 1,700 3,950 4,097 $16 $7 $6 1.18x
18-May-17 Crusader Resources Ltd. Brazil PFS Stratex International $40 57% 65% 68% 1,609 1,927 2,696 $19 $16 $11 n/a
25-Apr-17 Patagonia Gold (COSE) Argentina Pre-Prod. Pan American Silver $15 - - - - 899 1,176 - $17 $13 n/a
12-Apr-17 Bellhaven Copper & Gold Inc. Columbia PEA GoldMining Inc. $10 32% 21% 46% - 667 926 - $15 $11 n/a
1-Feb-17 Luna Gold Corp. Brazil PFS JDL Gold Corp. $73 23% 25% 16% 971 2,570 3,047 $87 $33 $28 0.24x
11-Jan-17 Goldcorp (Cerro Blanco) Guatemala Feas. wBluestone Res. $46 - - - - 840 1,070 - $55 $43 n/a
11-May-16 Timmins Gold (Caballo Blanco) Mexico PEA Candelaria Mining $18 - - - - 576 993 - $30 $18 0.22x
16-Feb-16 Magellan Minerals Ltd. Brazil PEA Anfield Gold Corp. $9 21% 25% 37% - 552 912 - $17 $10 n/a
Average $22
Resources (Koz) EV / Resources
Bid Premium to
w During the past twenty-four months, Cormark Securities Inc., either on its own or as a syndicate member, participated in the underwriting of securities
and/or provided financial advice regarding the stock market insight and financial analysis regarding potential transactions for these companies
Source: Company Reports
Page 16
MARCH 26, 2019 TYRON BREYTENBACH 416·943·6747; CAMERON MAGEE - ASSOCIATE 416·943·6749
16
Low Funding Inertia Strong grades, favourable location and a low-cost heap leach approach to the first
mine ensures Minera screens well on our buildability chart (Figure 18).
Based on our cash flow analysis we expect that Minera can fund production at the
first two assets with a combination of cash flow, royalty sale to Osisko Royalties,
US$10 MM in debt and US$5 MM in equity (in addition to numerous warrants).
Obviously, the debt/equity ratio may differ from our assumptions, but we expect
some type of debt facility with the royalty owner would make up the bulk of the
funding given the low equity valuation and rapid payback potential.
By 2021, we estimate the cash balance should start to grow (>US$40 MM) and can
then be used to fund ongoing growth through exploration and development of GDR,
re-investment into Santana/La Fortuna and external acquisitions.
While the exact growth path is likely to differ from our starting assumptions, it is
notable that unlike many peer small caps, Minera has the ability to move forward
without relying primarily on outside equity capital.
Figure 18 Top Ranked On Cormark “Buildability” Chart
♦SBB (3K)
♦SBB (6K)
♦AMM
♦OSK
♦ER
ORE
♦BSR
♦BGM
♦GSV
MAX
ORG CDV
♦AXR
♦IDM
MAG
♦WAF
FF
♦OLA
RGD
♦SIL
RIO
MAI
0%
100%
200%
300%
400%
500%
600%
$10
0
$30
0
$50
0
$70
0
$90
0
$1,1
00
$1,3
00
$1,5
00
$1,7
00
$1,9
00
$2,1
00
$2,3
00
$2,5
00
$2,7
00
$2,9
00
$3,1
00
$3,3
00
$3,5
00
Ca
pe
x S
ho
rtfa
ll (
As
% O
f M
kt
Ca
p)
Capex Intensity (Initial Capex (C$)/Annual Production)
Improved use of capital
Lo
we
r fi
na
nc
ing
hu
rdle
Source: Cormark Securities Inc., Company Reports
Page 17
MARCH 26, 2019 TYRON BREYTENBACH 416·943·6747; CAMERON MAGEE - ASSOCIATE 416·943·6749
17
Figure 19 Cormark Cash Flow For Minera As Modelled
$(240)
$(160)
$(80)
$0
$80
$160
$240
$(60)
$(40)
$(20)
$0
$20
$40
$60
20
19
20
20
20
21
20
22
20
23
20
24
20
25
Ca
sh
Ba
lan
ce
(U
S$
MM
)
Ca
sh
flo
w (
US
$M
M)
Mine Level FCF Capital Expenditure Debt Additions
Debt Repayments Equity Royalty Sale
Cash (US$1,250/oz) Source: Cormark Securities Inc.
Figure 20 Conceptual Production Model
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
0
25
50
75
100
125
150
175
201
9E
202
0E
202
1E
202
2E
202
3E
202
4E
202
5E
AIS
C (
US
$/o
z)
Go
ld E
q.
Pro
du
cti
on
(0
00
oz)
La Fortuna Santana GDR or M&A AISC ($/oz AuEq) Note – AISC based on existing asset base only Source: Cormark Securities Inc.
Page 18
MARCH 26, 2019 TYRON BREYTENBACH 416·943·6747; CAMERON MAGEE - ASSOCIATE 416·943·6749
18
Figure 21 Cormark Cash Flow Model For Minera
(US$000s) Present 2019 2020 2021 2022 2023 2024 2025
Mine Level Free Cash Flow (La Fortuna) - (26,900) 39,479 39,697 38,079 35,679 42,397
Mine Level Free Cash Flow (Santana) (12,500) 12,296 12,462 12,695 13,090 5,310 -
Total Mine Level Free Cash Flow (12,500) (14,604) 51,940 52,392 51,169 40,989 42,397
Capital Expenditures (La Fortuna) - (26,900) - - - - -
Capital Expenditures (Santana) (12,500) - - - - - -
Total Capital Expenditure (12,500) (26,900) - - - - -
Proceeds from Fortuna Royalty Sale 5,264 - - - - - -
Proceeds from Santana Royalty Sale - 3,008 - - - - -
Total Proceeds from Royalty Sales 5,264 3,008 - - - - -
Debt Additions 5,000 5,000 - - - - -
Principal Repayment - - - (10,000) - - -
Balance Remaining 5,000 10,000 10,000 - - - -
Interest (LIBOR + 8.5%) - 11.29% (564) (1,129) (1,129) - - - -
Debt Repayments (564) (1,129) (1,129) (10,000) - - -
Equity 5,000 - - - - - -
Proceeds from (ITM) Warrants - 10,794 - - - - -
Exploration (2,000) (2,000) (2,000) (2,000) (2,000) (2,000) (2,000)
Corporate G&A (2,500) (2,500) (3,500) (3,500) (3,500) (3,500) (3,500)
Starting Cash Balance 3,910 1,610 179 45,491 82,383 128,052 163,541
Ending Cash Balance 3,910 1,610 179 45,491 82,383 128,052 163,541 200,438
Change in Cash Balance (2,300) (1,431) 45,312 36,892 45,669 35,489 36,897 Source: Company Reports
Valuation Approach DCF Used For Santana And La Fortuna: We use a DCF analysis at $1,250/oz Au
and $15/oz Ag to value the near-permitted assets. La Fortuna (NPV5% of C$102.6
MM) carries the bulk of our NAV (C$0.20/sh) and this fact de-risks our estimates as
it is also the most advanced asset and the only one with an externally compliant PEA.
Santana carries just C$0.10/sh (C$50.2 MM) of our NAV but is important in de-
risking the thesis and is a source of early cash to redeploy to build La Fortuna.
In-Situ Value For GDR: We apply US$20/oz to the GDR resource (655 Koz AuEq)
which is below where small LatAm peers have changed hands in recent years.
No Exploration Value: We apply no value to the likely near-mine resource
expansion at all three assets, supporting our view that the stock can trade higher by
simply advancing to producer status.
Fully Funded/Diluted Model: Our models for Santana and La Fortuna include the
revenue drag from royalty sales to Osisko (4% at La Fortuna for C$7 MM and 3% at
Santana for C$4 MM) as well as dilution from a future C$6.6 MM (US$5 MM)
equity raise at C$0.11/sh. We include the expected proceeds (C$14.4 MM) and
dilution (100.8 MM shares) from warrants that are ITM at our target price (average
strike of C$0.14).
Minera trades at 0.27x our funded and diluted NAV and we expect it can transition
to 0.5-0.6x once reaching its growth targets and longer-term at 0.65x which is at the
low end of historical junior producer valuations.
Page 19
MARCH 26, 2019 TYRON BREYTENBACH 416·943·6747; CAMERON MAGEE - ASSOCIATE 416·943·6749
19
Figure 22 Minera Alamos Valuation Table At $1,250/oz Au and $15/oz Ag
C$MM C$/Share
Assets
La Fortuna NPV5% 102.6 0.20
Santana (Nicho Zone) NPV5% 50.2 0.10
Guadalupe De Los Reyes (655Koz at US$20/oz) 17.4 0.03
Corporate Adjustments
Current Cash 5.2 0.01
Cash from Royalty Sale (La Fortuna) 7.0 0.01
Cash from Royalty Sale (Santana) 4.0 0.01
Proceeds from Future Equity Financing 6.6 0.01
Cash from Warrants/Options ITM at Target 14.4 0.03
Debt 0.0 0.00
Total C$207.4 C$0.40
Basic Shares Outstanding (Current) 350.9
ITM Options and Warrants Outstanding 100.82
New Shares to Fund Capex @ C$0.11/sh 60.44
Fully Financed & Diluted Shares Outstanding 512.2
Current Minera Alamos Price C$0.11
Price/NAV 0.27x Source: Company Reports
Figure 23 Developer P/NAV Comparison (at $1,250/oz gold)
1.3
8x
0.9
6x
0.8
8x
0.7
9x
0.7
6x
0.5
8x
0.5
4x
0.5
3x
0.5
0x
0.4
9x
0.4
7x
0.4
5x
0.4
5x
0.4
5x
0.4
5x
0.4
5x
0.4
4x
0.4
3x
0.3
7x
0.3
3x
0.2
9x
0.2
7x
0.2
4x
0.2
3x
0.1
8x
0.1
3x
0.00x
0.20x
0.40x
0.60x
0.80x
1.00x
1.20x
1.40x
SE
N A
VG
MA
G
AX
R♦
MID
AV
G
SIL
♦
GS
V♦
CD
V
MA
X
OR
G
WA
F♦
AM
M♦
DE
V A
VG
JU
N A
VG
SB
B♦
TLG
PR
B♦
RIO
BG
M♦
OL
A♦
OR
E
IDM
♦
MA
I
FF
ER
♦
GQ
C
GF
G
w During the past twenty-four months, Cormark Securities Inc., either on its own or as a syndicate member, participated in the underwriting of securities
and/or provided financial advice regarding the stock market insight and financial analysis regarding potential transactions for these companies
Source: Company Reports
Page 20
MARCH 26, 2019 TYRON BREYTENBACH 416·943·6747; CAMERON MAGEE - ASSOCIATE 416·943·6749
20
Catalysts Timeline Commercial Scale Permit For Santana (Q2/19)
Royalty Funding Deal (2019)
Production at Santana (Q1/20)
Buy (S), C$0.25 Target We launch coverage with a Buy (S) rating and expect to remove that (S) qualifier
once Santana is producing.
At a 0.65x P/NAV multiple our target is C$0.25 share.
Minera offers a unique approach to the current weak market backdrop and is backed by
a proven operating team. Once surmounting the low production hurdles, the real upside
will come from plowing the cash back into the abundance of brownfields targets to
extend the mine life and/or fund external growth.
Page 21
MARCH 26, 2019 TYRON BREYTENBACH 416·943·6747; CAMERON MAGEE - ASSOCIATE 416·943·6749
21
Appendix A: Management & Directors
Darren Koningen,
CEO & Director
Mr. Koningen is an experienced metallurgist and mine builder with over 25 years of
international mining experience. Mr. Koningen was a founding member and VP of Mine
Development of Castle Gold Corp. and was integral in the development and
commissioning of the El Castillo heap leach gold mine in Mexico. Prior to joining Castle
Gold, Mr. Koningen was President and CEO of NWM Mining Corp. after being asked by
lenders to restructure the company in 2012. He led a new Management team to fix
operational issues, prepare a new production plan for a ramp-up to >60,000 oz/yr, and
complete a resource expansion. NWM quickly became cash flow positive and the project
was ultimately sold in 2015. Mr. Koningen holds a Bachelor of Applied Science in
Mineral Process Engineering from Queens University.
Doug Ramshaw,
President & Director
Mr. Ramshaw is a senior executive and corporate director with over 20 years of
experience in the mineral resource sector. His work has focused on mineral project
evaluation, M&A and business development strategies supporting corporate growth.
Previously, he worked as a mining analyst for an independent brokerage firm in London,
U.K. and has served in various executive capacities for several publicly listed junior
resource companies. Mr. Ramshaw holds a Bachelor of Science in Mining Geology from
the Royal School of Mines.
Chris Chadder,
CFO
Mr. Chadder has over 20 years of financial management experience and has served in
senior roles with various mining companies in all stages of the mining cycle. Mr.
Chadder holds a Bachelor of Business Administration from Brock University and is a
member of the Canadian Institute of Chartered Accountants.
Federico Alvarez,
VP, Project Development
Mr. Alvarez is a mining engineer with 35 years of experience within academia,
government and the mining industry, primarily in Mexico. He joined Minera Alamos in
2011 and oversees all operations and mine planning. Previously, Mr. Alvarez was VP of
Operations for Argonaut Gold Inc., and its predecessor Castle Gold Corp., where he
supervised production at the El Castillo gold mine in Durango, Mexico, and worked with
the company’s JV partner on the El Sastre gold mine in Guatemala. Mr. Alvarez holds a
Bachelor of Mine Engineering from Guanajuato University and a Master’s degree in
Mining Engineering from McGill University.
Miguel Cardona,
VP, Exploration
Mr. Cardona is a geological engineer with over 20 years of experience in mineral
exploration and underground and open-pit mining operations. He has worked with
numerous ore types including gold skarn, epithermal gold and silver and copper-zinc-
gold deposits. Mr. Cardona managed all exploration activities for Castle Gold, leading a
three-fold increase in El Castillo’s gold resources from 400k oz to 1.2M oz prior to its
acquisition in 2009. He also worked for Teck-Cominco and was part of the team that
discovered the Los Filos and El Limon gold deposits in Mexico. Mr. Cardona holds a
Bachelor of Geological Engineering and a Master’s degree in Planning and Systems from
the San Luis Potosi University.
Page 22
MARCH 26, 2019 TYRON BREYTENBACH 416·943·6747; CAMERON MAGEE - ASSOCIATE 416·943·6749
22
Chester Millar,
Director
Mr. Millar began his career in the 1960s when he discovered and developed the highly
successful Afton Mines Ltd. open-pit copper-gold mine near Kamloops, British
Columbia. He served as Chairman of Glamis Gold Ltd. from 1985 to 1998 and as
Chairman of Eldorado Gold from 1992 to 1994, steering both companies into substantial
gold producers with global operations. He co-founded Alamos Gold and guided its
acquisition of the Mulatos gold project in Mexico. Mr. Millar was also Chairman of
Castle Gold Corp. from 2004 to 2008, and Chairman of Pediment Gold Corp. from 2008
to 2011. Mr. Miller was inducted into the Canadian Mining Hall of Fame in 2008. He is a
Professional Engineer and holds a degree in Geological Engineering from University of
British Columbia.
Ruben Padilla,
Director
Mr. Padilla has over 25 years of diverse mining and exploration experience in precious
and base metals. He is currently Chief Geologist with Talisker Exploration Services Inc.,
an Ontario-based mining and exploration services company co-founded by Mr. Padilla,
whose principal clients are Osisko Gold Royalties Ltd. and their associated companies.
Mr. Padilla holds a geological engineering degree from the University of Chihuahua,
Mexico, and Master’s and PhD degrees from the University of Arizona.
Bruce Durham,
Director
Mr. Durham has been involved in the mining and exploration industry for over 40 years
and is currently the President and CEO of Nevada Zinc Corporation. He was an integral
member and leader of various exploration teams credited with the discovery of several
significant deposits including the David Bell and Golden Giant gold mines in Hemlo,
Ontario and the Redstone Nickel and Bell Creek gold mines in Timmins, Ontario. More
recently, Mr. Durham served as President and CEO of Canadian Royalties when that
company discovered several Ni-Cu-PGE deposits in Raglan area of Quebec, which are
currently at the feasibility stage. Mr. Durham holds a Bachelor of Science degree in
Geology from Western University.
Page 23
MARCH 26, 2019 TYRON BREYTENBACH 416·943·6747; CAMERON MAGEE - ASSOCIATE 416·943·6749
23
Appendix B: Risks To Target
The following is a list of the most common risks that apply to the stocks mentioned in
this report. Generally, these risks apply to all companies in varying degrees.
Commodity Price Risk: Our short- and long-term commodity price assumptions are
made based on detailed research, and viewed to be reasonable based on current
information. However, the timing and magnitude of commodity price fluctuations are
always a significant risk that, in most cases, strongly affects the value of mining and
mineral exploration/development companies focused on a specific commodity. The
primary metal exposure of the companies in this report is to gold and silver; however,
some may have exposure to metal products such as copper, zinc, and nickel, and the
prices of these metals may affect their valuation.
Cost Risk: Both capital and operating costs may be affected by changes in input prices
(fuel, steel, chemicals, etc.) and by relative currency changes. Companies may be at risk
of unexpected cost escalation as a result of these potential threats.
Financing Risk: Companies with large growth plans or exploration companies with no
free cash flow may require external capital to continue with exploration programs and
develop new mines. In order to finance these endeavors, equity or project dilution may be
taken in order to fund the equity portion of the capital costs if the project is to be
developed. Shareholders may also be subordinated by lenders in order to finance an
exploration project.
Geopolitical Risk: This risk deals with policies such as permitting and tax laws that are
managed by governments of a jurisdiction (country, state, province, etc.). These policies
usually affect mining companies more than exploration companies. Generally,
developing countries are seen as being more risky because of the potential of a quick
change in power to drastically change policies. Developed countries have their
geopolitical risk issues, and jurisdictions and powerful environmental lobbies can also
make mining or exploration difficult.
Technical Risk: Ore reserve and resource risk is a technical risk that is derived from the
subjective nature of geological interpretation. Engineering-based forecasts are by nature
imprecise, and unexpected risks include events such as earthquakes and strikes. Such
events could materially affect the value of shares.
Regulatory Risk: The mining industry is highly regulated, and as such, changes in the
scope of environmental practices can have a significant impact on the cost and viability
of mining operations.
Exploration Risk: In some cases, the market may build in expectations for exploration
success before the actual exploration work has taken place. In the event that results do
not meet the market’s expectation, the company’s shares may be negatively affected.
Page 24
MARCH 26, 2019 TYRON BREYTENBACH 416·943·6747; CAMERON MAGEE - ASSOCIATE 416·943·6749
24
Recommendation Terminology
Cormark’s recommendation terminology is as follows:
Top Pick our best investment ideas, the greatest potential value appreciation
Buy expected to outperform its peer group
Market Perform expected to perform with its peer group
Reduce expected to underperform its peer group
Our ratings may be followed by "(S)" which denotes that the investment is speculative
and has a higher degree of risk associated with it.
Additionally, our target prices are based on a 12-month investment horizon.
Disclosure Statements and Dissemination Policies
A full list of our disclosure statements as well as our research dissemination policies and
procedures can be found on our web-site at:
Analyst Certification We, Tyron Breytenbach and Cameron Magee, hereby certify that the views expressed in
this research report accurately reflect our personal views about the subject company(ies)
and its (their) securities. We also certify that we have not been, and will not be receiving
direct or indirect compensation in exchange for expressing the specific
recommendation(s) in this report.
Page 25
MARCH 22, 2019 TYRON BREYTENBACH 416·943·6747; CAMERON MAGEE - ASSOCIATE 416·943·6749
25
Figure 24 Argonaut Gold Inc. - Disclosure Chart
Source: Cormark Securities Inc.
Page 26
MARCH 22, 2019 TYRON BREYTENBACH 416·943·6747; CAMERON MAGEE - ASSOCIATE 416·943·6749
26
Figure 25 Equinox Gold Corp. - Disclosure Chart
Source: Cormark Securities Inc.
Page 27
MARCH 22, 2019 TYRON BREYTENBACH 416·943·6747; CAMERON MAGEE - ASSOCIATE 416·943·6749
27
Figure 26 Minera Alamos Inc. - Disclosure Chart
Source: Cormark Securities Inc.
Page 28
MARCH 22, 2019 TYRON BREYTENBACH 416·943·6747; CAMERON MAGEE - ASSOCIATE 416·943·6749
28
Figure 27 Osisko Gold Royalties Ltd. - Disclosure Chart
Source: Cormark Securities Inc.
Page 29
TORONTO
Royal Bank P laza South Tower
200 Bay S t reet , Su i te 2800 , PO Box 63 Toronto ON
M5J 2J2 Te l : (416 ) 362-7485 Fax: (416) 943 -6499
To l l F ree: (800) 461 -2275
CALGARY
Eighth Avenue P lace 525 E ighth Avenue SW , Sui te 4800
Calgary AB T2P 1G1
Te l : (403 ) 266 -4240 Fax: (403) 266 -4250
To l l F ree: (800) 461 -9491
www.cormark.com
For Canadian Residents: This report has been approved by Cormark Securities Inc. (“CSI”), member IIROC and CIPF, which takes responsibility for this report and its dissemination in Canada. Canadian clients wishing to effect transactions in any security discussed should do so through a qualified salesperson of CSI. For US Residents: Cormark Securities (USA) Limited (“CUSA”), member FINRA and SIPC, accepts responsibility for this report and its dissemination in the United States. This report is intended for distribution in the United States only to certain institutional investors. US clients wishing to effect transactions in any security discussed should do so through a qualified salesperson of CUSA.
Every province in Canada, state in the U.S., and most countries throughout the world have their own laws regulating the types of securities and other investment products which may be offered to their residents, as well as the process for doing so. As a result, some of the securities discussed in this report may not be available to every interested investor. Accordingly, this report is provided for informational purposes only, and does not constitute an offer or solicitation to buy or sell any securities discussed herein in any jurisdiction where such would be prohibited.
The information and any statistical data contained herein have been obtained from sources believed to be reliable as of the date of publication, but the accuracy or completeness of the information is not guaranteed, nor in providing it does CSI or CUSA assume any responsibility or liability. All opinions expressed and data provided herein are subject to change without notice. The inventories of CSI or CUSA, its affiliated companies and the holdings of their respective directors, officers and companies with which they are associated may have a long or short position or deal as principal in the securities discussed herein. A CSI or CUSA company may have acted as underwriter or initial purchaser or placement agent for a private placement of any of the securities of any company mentioned in this report, may from time to time solicit from or perform financial advisory, or other services for such company. The securities mentioned in this report may not be suitable for all types of investors; their prices, value and/or the income they produce may fluctuate and/or be adversely affected by exchange rates.
No part of any report may be reproduced in any manner without prior written permission of CSI or CUSA
A full list of our disclosure statements as well as our research dissemination policies and procedures can be found on our web-site at: www.cormark.com